Microsoft’s Terrible Year

I am a fan of MicrosoftMSFT +0.65%. My company is a Microsoft Partner (we sell their Dynamics CRM product). I use Microsoft products. I really, really want Microsoft to do well. But let’s be honest: 2013 was not their year. In fact, it was a terrible year for the software giant.

The launch of Windows 8 was a bust. PC shipments experienced their “most severe yearly contraction on record” with “little indication of positive growth beyond replacement of existing systems.” Hence…Microsoft’s latest operating system, which was released in late 2012, is not selling very well either, and continues to get lukewarm feedback from both the user and tech community. Adoption is lagging “far behind” Windows 7. Hardware partners have “not spoken kindly” with Samsung’s management going so far as to blame it for the recent decline in PC sales, calling it an “uncompetitive platform.” Just recently, the company announced that it will allowmanufacturers of computers to continue selling Windows 7, a step back and a nod to the slow adoption of Windows 8. The company was forced to quickly issue Windows 8.1 to fix some of the more prominent issues with Windows 8, like restoring the beloved Start menu and addressing usability complaints. And although some are reporting that Windows 8 is showing “surprising resilience” the new release has not lived up to the hype and I’m sure has not been the “savior” that Microsoft execs were hoping it would be in its war against AppleAAPL +0.48% and GoogleGOOG +1.15%.

The Surface bombed. Microsoft’s venture into the tablet/laptop business is not going well either. Surface sales were described back in July as “shockingly hideous” and the major media went to great lengths to explain why the Surface was not as good as the iPad. Microsoft responded with a new (and better) product later in the year and promises that they are in it for the long haul. And the good news is that the new version of the Surface sold well on Black Friday and could become a holiday season winner. Even so, sales of the unit are but a blip compared to other tablets and yet another black eye for the software giant.

The company continued to take a beating in the smart phone wars. Most recent data shows that Microsoft remains a non-player in the smart phone market, with market share coming in even less than troubled BlackBerry. In 2013 Microsoftcompleted the purchasedNokia ’s phone business in an effort to compete with Apple and Google in a move that sent their stock price plummeting at the time and lopped off more than $15 billion of the company’s market value as “investors protested the acquisition of an underperforming and marginalized corporation that lost more than $4 billion in 2012.” Things seem to have gotten so desperate that the company is now seriously considering offering a free version of Windows phone to battle the iPhone and Android.

A major reorganization occurs. Amidst falling PC sales, lukewarm response to Windows and a trouncing in the smart phone market, Microsoft’s CEO Steve Ballmerannounces a major reorganization of the company “by altering its organization around the “devices and services” vision. The restructuring is massive and touches every corner of Microsoft, shifting its executives into different roles.” Reorganizations of established companies are rarely undertaken when things are going well. Most analysts agreed that the move was a good one…and should have happened a few years ago.

…And then six weeks later the CEO quits. You know things aren’t going great when your own CEO, who also happens to be an icon in the technology world, announces his retirement saying “…there is never a perfect time for this type of transition, but now is the right time. My original thoughts on timing would have had my retirement happen in the middle of our transformation to a devices and services company focused on empowering customers in the activities they value most. We need a CEO who will be here longer term for this new direction.” Steve Ballmer does not strike me as a guy who retreats from battle or ever stops fighting. But in 2013 even he recognized that his beloved company was in trouble enough to need new leadership and direction.

The media abuse continued. This year, Vince Vaughn and Owen Wilson (hilariously) vied on screen for the world’s most wonderful prize ever: a full time job at Google. Ashton Kutcher morosely lionized Steve Jobs while being surrounded by an Apple logo for two continuous hours and Amazon’s Jeff Bezos pulled the greatest PR stunt of the year by announcing his plan for tens of thousands of drones to fly above our heads while delivering his company’s packages (why, what could possibly go wrong?). Meanwhile, Microsoft continued to get black eye after black eye in the press as it suffered one embarrassing defeat at the hands of its enemies, reorganized, shook up its management and publicly tried to figure out its future. Things are so bad that college kids are laughed at if they arrive freshman year with a Windows laptop instead of a MacBook. I know this…my kids are college freshmen.

And yet…I’m still optimistic about the company’s future. With all the hoopla, the company’s stock price is the highest it’s been in 13 years, made $5.2 billionjust last quarter and ranks #35 on Fortune’s list of largest companies behind Apple but surpassing Google, Vince Vaughn notwithstanding. I love the new version of their Dynamics CRM product which we sell and so do our clients. My kids enjoy talking trash while killing terrorists and gang members on their Xbox (and no, I’m not winning any parent of the year awards for that). I’m excited at the prospect of a new CEO. I am impressed at the expertise, loyalty and enthusiasm still demonstrated by the company’s enormous partner community (something that Apple or Google will not match anytime soon).

2013 was a terrible year for Microsoft. But don’t let a few blips in the road deceive you. This is a smart, smart company. How smart? Smart enough that they earn $2 billion a year…from Android royalties.